Hercules Offshore cuts 40 pct of its workforce in 1Q

In the first quarter of the year, U.S. offshore drilling contractor Hercules Offshore laid off almost 40 percent of its workforce. This was revealed yesterday at a conference call by the company’s CEO, John T. Rynd.

As Offshore Energy Today has reported earlier, if seismic contractors are the first to feel the consequences of capex cuts by the oil companies when the oil prices go down, drilling contractors are the second, as their services and drilling rigs are used following a seismic data survey over a prospective block.

As a response to the spending cuts by oil companies, drilling contractors, such as Hercules Offshore, then start working towards lowering their operating costs by cold stacking and warm stacking their rigs without a contract or a near term possibility of a contract.

Consequently, less or no workers are needed to operate those rigs, and that leads to layoffs.

Hercules cold stacked five rigs during the first quarter. To remind, Hercules also cold stacked four rigs in the fourth quarter of 2014.

Rynd did not provide the exact number of the workers who were let go, but according to the company’s annual report for 2014, Hercules Offshore had approximately 1,800 employees at the end of 2014. This means that approximately 720 had to leave their positions.

Shedding some light on the market situation, during the conference call, Rynd said that  adding that there are currently 19 jack-up drilling rigs looking for a contract in the U.S. Gulf of Mexico, with just 10 under contract today.

“This is the lowest level of demand we have seen since the early days of the offshore industry,” Rynd said.

On the international market, outside of the U.S. Gulf of Mexico, Rynd said that so far this year, there have only been 21 new contracts signed outside of the U.S. Gulf of Mexico compared to 43 over the same period last year.

Difficult decisions

Regarding personnel cutting, Rynd said: “We have implemented a number of measures to reduce our spending. Our global workforce has been reduced by almost forty percent. The personnel decisions have been very difficult as these are our friends and colleagues who have contributed to the success of our business over the past several years. But unfortunately, these are actions we have to take.”

He also said that even if the oil prices go up this year, it would take time for activity levels to recover. Rynd noted that the company is going to aggressively seek more ways to reduce spending, and improve efficiency, but not at the cost of the safety performance.

Explaining the rationale behind cold stacking and warm stacking as a way to slash costs Rynd said: “…by cold stacking our domestic rigs, we can lower the operating cost per rig to approximately $2,000 to $2,500 per day down from almost 40,000 per day for a full crude marketed rig. In addition, we can reduce the cost on the warm stacked rigs to around $7,500 to $9,000 per day as these rigs will carry a much smaller crew complement.”

The company yesterday reported a net loss of $57 million for the first quarter 2015. Revenue fell to $122.6 million versus $257.7 million a year ago.

Offshore Energy Today Staff

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